ESG and other potential issues for the metaverse
Regulation and interoperability
The new playing field of big tech may create new concerns from regulators and authorities. So
far, the metaverse has been essentially articulated around gaming platforms, running their own
digital environments, not requiring much attention, in our view. But the ambition set for the
metaverse, whether from Meta Platforms, Tencent or Microsoft to name a few, is much larger.
If the metaverse eventually gets the traction that Big Techs expect, this will concern not only
gaming, but also social interactions, e-commerce, collaborative work and entertainment, to
quote a few area of activities.
Regulators around the world have tried in recent years to limit the influence of the large tech
companies that also happen to have the financial power to finance massively the development
of the metaverse. In its Proposal for a regulation of the digital sector (Digital Market Act, 15
December 2020), the European Commission (EC) indicates that the large platforms exploiting
core services have the following characteristics:
Extreme scale economies: with nearly no marginal cost to add a user, the incumbent can
gain a significant competitive advantage that cannot be won back by a competitor
Networks externalities and network effects (Metcalf’s Law): the more users, the more
efficient the service, so a new competitor with a lower price or a better privacy policy will
find hard to gain scale (lock-in, vertical integration, etc)
The EC adds that such characteristics, if combined with unfair conducts by platforms, can
impact the fairness of the market place. The EC also explains that a small number of large
suppliers have emerged with “considerable economic power, leveraging their access to large
amounts of data from one area of their activities to new ones”. Given the high barriers to entry to
replicate the existing ecosystems, the EC is concerned that these characteristics could lead to
unfair practices and conditions for businesses and end-users. The EC therefore proposes to
introduce the definition of gatekeepers to which specific regulatory safeguards should be
applied. Amongst the Do’s and Don’ts that the EC wants to impose, we found the notion of inter-
operability: gatekeepers will have to “allow third parties to inter-operate with the gatekeeper’s
own services in certain specific situations”. To be deemed as a gatekeeper, the EC requires the
cumulative criteria of a European revenue above EUR6.5bn, more than 45m active monthly
users and an “expected entrenched and durable position”, measured as the two first criteria
have been met in the last three financial years.
We see interoperability as a risk to platforms’ current (siloed) business, but an opportunity for
more competition in the metaverse. Would Facebook (the social network), for example, be able
to retain its users and their engagement if data portability and interoperability were enforced?
Portability and interoperability are highly technical and complex, but this has already been
undertaken in the highly sensitive banking sector. But Mark Zuckerberg is calling for
interoperability in the metaverse (Facebook Connect 2021 keynote speech, 28 October 2021).
Mr Zuckerberg insists on the necessity for standardisation and interoperability. Given its size
(1.93bn daily users, 2.91bn monthly users) and its driving force in a key piece of the metaverse
ecosystem (VR headsets), what Meta Platforms is calling for has to be considered seriously.
In an interview (Stratechery, 28 October 2021), Mr Zuckerberg gave more indication of the need
for interoperability and collaboration: “you wouldn’t say that Facebook or Google are building
their own Internet and I don’t think in the future it will make sense to say that we are building our
own metaverse either. I think we’re each building different infrastructure and components that
go towards hopefully helping to build this out overall and I think that those pieces will need to
work together in some ways”. He is also calling for “some sets of open standards where things
are interoperable”.